Trading Full-Time continued
Thanks to Forex2stay for the following comments. Visit his blog at http://forex2stay.blogspot.com/
I do think it's possible, but I believe money mangement is the key.
This needs to be a marathon not a sprint. One thing I've realized is
that you can't use the same lot sizes for all of your trades. For
example on one trade you might be risking 30 pips and another 20 pips.
So if you trade 4 lots on both of them (standard account) you'd be
risking $1,200 on one trade and $800 on the other. That's not good
money management and it can get you a person in trouble.Here's what I do…..
When
I position trade (4hr and daily charts), I won't trade unless I have a
2:1 risk reward ratio. I figure out the proper stop loss for my trade,
based on TA. So for this example say that's 40 pips. I then make sure
based on TA that I'm comfortable getting at least 80 – 120 pips profit.
Once i'm comfortable I put my information into the following formula.
S=(E*R) / (P-X)
S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price
So let's put in some numbers…..
My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560
So how many shares of EUR can we buy with our money management rules??
S=($10,000 * 3%) / (1.2600 – 1.2560)
S = $300 / .40
S= 75,000
Anyway this is the way I do it. I hope it helps…
Forex2stay
How Realistic Am I Being About Trading Full-Time
During my workout today, I crunched some numbers in my head to see what it would take for me to be able to trade full-time. I've tried to find these answers on forums like Moneytec. I know a lot of you may visit forex forums but I don't find them beneficial one bit. There is too much garbage to sift through. Someone on Moneytec asked if it is possible to trade Forex full-time and it wound up being a very long thread with no real answers. It was full of people stating that it was possible, others stating that you needed a million dollars in initial capital to do it, and pessimists stating that it was not at all possible. Now it may be that this is not an easy question to answer. I will attempt to run something by all of you and you are free to bash it at will. My assumptions may be conservative or even unrealistic. How would I know the real answer to this question because I have not experienced it yet.
Here are my assumptions:
- You are consistently profitable now
- You have a trading system that wins 60% of the time
- You make 10 trades a week
- Each winning trade averages a profit of 30 pips
- Each losing trade average a loss of 30 pips (Yes, this is a 1:1 risk/reward)
- You start with $10,000 in trading capital
- You do not risk more than 3% on any trade
- You are trading a standard 100K lots
- You will not pull any capital out of your trading account until you reach your full-time goal
The first thing you have to ask yourself is how many lots do I need to trade to make a standard of living that I am accustomed to? I live in the New York City area and for me to maintain my standard of living, I would really need to make $2400 a week. If I make $600 a week trading 1 lot, then I really need to be trading 4 lots at a time to do this full-time.
- 1 lot = $600 per week
- 2 lot = $1200 per week
- 3 lot = $1800 per week
- 4 lot = $2400 per week
- 5 lot = $3200 per week
You are starting with $10,000 in capital, can only risk 3% on each trade, therefore you can only trade 1 lot initially. Based on my assumptions, you are making $600 a week. How long will it take to be able to trade 2 lots?
You will need $20,000 to start trading 2 lots so you must continue to trade 1 lot until you make $10,000 more. Making $600 a week, it will take 17 weeks or roughly 4 months to reach your 2 pip allowance.
Now you have $20,000 and you're trading 2 lots per trade. I need to trade 4 lots and preferably 5 lots a trade to make a living doing this full-time. Trading 2 lots at a time, I'm now making $1200 per week. How long will it take until I can trade 3 lots?
You will need $30,000 to start trading 3 lots so you must continue to trade 2 lots until you make $10,000 more. Making $1200 a week, it will take roughly 8 weeks or 2 months to reach your 3 pip allowance.
Now you have $30,000 and your trading 3 lots per trade. How long will it take until I can trade 4 lots?
You will need $40,000 to start trading 4 lots so you must continue to trade 3 lots until you make $10,000 more. Making $1800 a week, it will take roughly 5 1/2 weeks or a little over a month to reach your 4 pip allowance.
So now you have $40,000 in your account and your trading 4 lots at a time. You are averaging a profit of $2400 a week. How long did it take you to trade full-time?
About 30.5 weeks, a couple of weeks more than a 1/2 a year.
Is this correct? I want anyone and everyone to rip this theory apart!!!
Obviously the key here is you have to be profitable before embarking on this journey. Just being able to do that could take years and years.
Most Volatile Pairs during Asian Session
Before I dive into this post, let me tell you that from everything I've read and watched from Rob Booker (and from everything he has directly told me) it doesn't seem like the Asian session exists to him. Now he hasn't told me this exactly but he seems to concentrate his effort on the NY Session from 7 am EST – 11 am EST. I told you earlier today that when he was working full-time, he was trading the European session and he did tell me yesterday that you will get a lot of trade opportunities from 4 am EST. So from the information I've gathered, I'd have to say he recommends trading during the hours of 2 am and 11 am EST.
What about the Asian session? For those of you that work in the United States or Canada or anywhere close to the Eastern Time Zone, the Asian session gives us a chance to actually trade when we get home from work without having to get up in the early morning hours with 1/2 a nights sleep to trade the European session.
I will ask Rob if he recommends trading the Asian session or if any of his student have success doing so.
What I wanted to do in this post was to mention the most historically volatile pairs during the Asian Session thanks to Kathy Lien from FXCM. Kathy did a good amount of research on this subject and I thank her for the information though I have asked for absolutely no permission to use it. These PIP ranges are for the time period between 7 p.m. – 4 a.m. EST
| Currency Pairs | PIP Range |
| GBP/JPY | 112 |
| GBP/CHF | 96 |
| USD/JPY | 78 |
| USD/CHF | 68 |
| GBP/USD | 65 |
| AUD/JPY | 55 |
| EUR/CHF | 53 |
| EUR/USD | 51 |
| USD/CAD | 47 |
| NZD/USD | 42 |
| AUD/USD | 38 |
| EUR/GBP | 25 |
As you can see from the chart above, the best options for risk-tolerant traders during this time period are the GBP/JPY, GBP/CHF, and USD/JPY.
For risk-averse traders, AUD/JPY, GBP/USD, and USD/CHF provide more moderate volatility.
The only problem I see with the risk-tolerant pairs, at least 2 of them is the spread. The GBP/JPY spread at FXCM is 9 pips, the GBP/CHF 15 pips! The USD/JPY offers the lowest spread on FXCM at 4 pips.
The risk-averse pairs are a bit better spread wise with AUD/JPY at 8 pips, GBP/USD at 5 pips, and the USD/CHF also at 5 pips.
There’s a New Kid in Town
There's a new guest trader on fxcmtr.com. His name is John Putnam and he comes from Putnam Financial.
This is John's Trade Methodology:
| FX Analytics (FXAN) is a blend of quantitative modeling, combined with advanced technical overlays. PFI's trade and forecast models are built around a balanced dollar index providing exceptional insight and liquidity into a large group of US based pairs. FXAN utilizes a mathematical model and scientific grade software to process a large dataset across a distributive grid of computers. This forecast is then triggered into actual trades through a series of overlays where algorithm efficiency, market dynamics and specific risks are modeled and factored in. |
HIS ANALYSIS?
Trade Idea:
Long EUR/USD on a bullish candle reversal (1 hour or 2 hour bullish Harami) that fails to sustain a break below 1.2240
Stops below 1.2210
Target 1.2330
Dollar forecast for the next 24hrs: Bearish
Stronger EUR/USD, GBP USD & AUD/USD
Weaker USD/JPY, USD/CHF & USD/CAD
Market Dynamics:
Favored – Cyclical & Regression Models
At Risk – Trend Models
PFI exited its long EUR/USD trade this morning for 221 pips. For all practical purposes I could have stayed with it given the model bias remains bearish on the dollar. That said, with a major event risk on the horizon (NFP on Friday) I've decided to stand aside for the balance of the week.
Today's price action will probably look a lot like yesterdays and will remain choppy through the day. This makes the target of the trade idea (1.2330) a tough task in the short term and could push traders into Friday trying to achieve it; which I don't encourage. 1.2240 and 1.2210 are Bollinger Band and ma support levels (different time frames) with 1.2330 bringing in substantial Bollinger Band resistance.
Overall the dollar is finding some support at our lower channel; it would be unusual for the dollar to sustain a push deeper into this region after floating across the top for any length of time. If we don't see a substantial pull-back to a more neutral position tomorrow, I'd almost expect to see NFP come out stronger than expected or an overall muted reaction to poor numbers, which will leave the market in good shape for a technical reversal at the beginning of the week.
Dooku Forex Trading System
I started to work on multiple trading systems over the last week or so and realized that I was falling into the same trap of trying to do too many things at once. I decided this weekend to work on my first trading system more. The first thing I did was give it a cheesy name so that I can distinguish it from all the others. I have named it Dooku. You can figure out on your own where I got this one from.
This system was previously being tested on hourly charts with a risk reward of 1:1. It tested well with a 50 pip stop loss and a 50 pip profit target. The first thing I wanted to do was to get the risk reward to 3:1. I successfully accomplished this and Dooku tests very well on the hourly charts with a stop loss of 75 pips and a profit target of 225 pips.
I will forward test this system this week and going forward to see how it performs. From my backtesting, it has never had a losing month. I will forward test this with real money and 1 lot each trade. I will use a 75 pip stop and a 225 pip profit target. I will trade only the GBP and EUR. From my calculations, this system will generate an average of 20 signals a month for each currency pair.
Learn from Booker
More Booker Today:
The pair closed above the channel top. I am very bullish on this pair right now. The channel is about 500 pips wide, and that means that I am looking for a move above the channel of 500 pips, give or take 50. The pair broke above the channel at 205.20-30 or so, and that means we are targeting 210.00 for the profit target.
; "Rob Booker")
I took the first part of this trade with a small lot size (a fraction of my regular trade size) so that I could safely place my stop back inside the channel at 203.60. This means that I have plenty of room for the pair to bounce around.
This trade is not risk free! Even though it seems to be on a trip upward, we could see a sudden reversal in this pair. Do not ever risk a substantial portion of your account on 1 trade or set of trades. Make sure you limit your risk on wide stopped trades by reducing your trade size.
Designing a Profitable System
Thanks to Greg for a great post. Read this.
I believe anyone can design a profitable system, as long as one understands market principles, what goes up, must come down faster. Twice as long to go up and half as much time to come down. I believe that if I am short the market, I need to trail my stops tighter to lock in profit than when I am in a long position. As for as my original stop, all my systems risk the same amount — small. I use to believe that the 3% rule was nonsense with a $10k account. But in the S&P and currencies, I daytrade with less than 2%. I simply cannot get wiped out that way and my profits are at least twice as much the risk in the S&P when trading one contract.
How much am I going to make? I am asked that repeatedly. I can always tell how much experience a trader has by that question. It is not what you make that is important, but what one does not lose. After I have a profit of so many pips in a daytrade, the most important ingredient to my trading takes place, the break-even stop. I have not read any books giving much attention to this concept. What a stressless (for the most part) feeling it is after I am at break-even.
The best way to trade is to find something simple, that works most everywhere and then become very consistent in your approach. Develop your own system, test it, then stick with it. Other people’s systems may work well for them, but probably will not be compatible with your psychological make-up."
* * *
From Successful Anonymous Trader:
You simply cannot have any confidence if you do not have a method or way of identifying trades along with money management guidelines. You’re lost in the woods, so so speak. I was there for many years. What did I do? This may help a lot of you:
I threw out 99% of all the crap I learned about oscillators, divergences, Elliott Wave, cycles, timing, seasonals, Gann, pitchforks, volume, Fractals, RSI, stochastics, overbought/oversold (this is a good one–the stock indexes, currencies and cotton for example everyone said were overbought and topping in February and March this year). Look at what they did. Needless to say, I don’t pay any attention to this anymore either, etc., etc. The list goes on to infinity almost. I went back to the basics. I went back to simple chart patterns, (a simple moving average and trendline now and then for a visual aid.)
I came up with a low risk money management plan and put it together with trading with the trend and, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a ndw way to trade. I am sick and tired of that after 7-years.
I believe at becoming an expert at one market nd its behavior and then putting all your skills and energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase your size over time and you’ll make more money with less effort. There are lots of professionals that do this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.
One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be more selective and not trade in congestion as much as I did before. I miss some good trades out of congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and get better and more profitable trades.
My attitude is changing now to one or two good trades, and that is all I need to make my week ( a triple or a home run, so to speak). There are plenty of them during any given week.
Trading is fun. Once you have a method and money management in place, it allows you to concentrate on trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a simple method for next year. One thing that you can hang your hat on will last you a lifetime. Trading is simple. Remember that it’s the Execution or Implementation of your trading plan that is the bigger challenge.
Most people make finding the method a big challenge. That is because there is so much junk thrown at traders. They feel like a child in a candy store and have to try every doodad in the place. When they are done, they are sick and never want to see another candy store (trading gizmo) again. They could have had the palin piece of milk chocolate at the front of the store (simple method price patterns) which would have done everything they desired and fulfilled all their needs.
I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or indicator that will turn their life around. Search for simplicity. You will be surprised what has been right under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they say they will will tell you everything. You need to listen and get to know them. It can be that simple.
Commodity Traders Club News (1997)
Multi-lot strategy for Today
I have exited only 1-lot of a 3-lot position for the first time. Last week I said that I had a bad habit of closing out a position when it went a little bit in my favor and that developing a multi-lot exit strategy may help.
I entered a Long position in the USD/CAD at 1.1360 (3 lots):
My targets were:
T1 – 1.1395
T2 – 1.1425
T3 – 1.1460
My T1 was hit for a 35 pip profit. I heard that it would be best to move your stop up to the entry level which I did at 1.1360. So the worst I can do at this point is make a profit of 35 pips. The best I can do is a profit of 200 pips.
I already feel like this strategy will be good for me. For one, I already have a guaranteed profit. Two, I have the potential to profit 165 more pips without any risk of losing anything except unrealized gains. I really think this will prevent me from micro-managing my positions and
impulse trading.
